Amazon Wrangles Publishers as iBookstore Grand Opening Looms

Apple's newest charmed pair, the iPad and the iBookstore, will amble onto the publishing scene in just a couple of weeks, and Amazon is justifiably fearful. Its popular Kindle may quickly become a has-been, and it could lose hard-won ground in the e-book marketplace. What's a giant to do? Twist a few arms. If publishers bow to Amazon's latest terms, will e-book prices rise or fall?

With an unwavering focus on Apple's forthcoming iBookstore, Amazon has begun pressuring e-book publishers to sign three-year contracts that ensure no competing retailers will get better prices or treatment.

That's according to a
recent report in The New York Times, which cites two industry executives with direct knowledge of the discussions.

The new tactics come hard on the heels of Amazon's
conflict with Macmillan earlier this year over the publisher's switch to an agency model, whereby retailers such as Amazon act as agents of the publisher and earn a 30 percent commission on publisher-set prices. Those prices, Amazon asserted, were "needlessly high."

Amazon's stock tumbled following that well-publicized conflict, in which the e-tailer even stopped selling Macmillan books temporarily in protest.

The titles were soon restored to Amazon's virtual shelves, but the latest round of pressure tactics raises the question of how far the company would be willing to go to compete with Apple's iBookstore, which will launch in the United States with its iPad device on April 3.

Five of the 'Big Six' for Apple

Apple, in fact, has been applying similar pressure to publishers participating in its iBookstore, The New York Times reported, including five of the "big six": Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin.

Only Random House has not yet signed on, The Times said.

Such publishers will use the agency model for iBookstore sales, allowing them to set prices as long as they pay Apple 30 percent. Typical prices under that model are $12.99 to $14.99 for most newly released titles.

Apple does stipulate, however, that publishers must not allow other retailers to sell their e-books for less than their iBookstore prices, according to The Times.

Whereas Amazon ultimately agreed to let Macmillan set its own prices, it has typically tried to keep its titles at $9.99.

"My sense is that consumers have been very happy with the pricing model Amazon has established," Kurt Scherf, vice president and principal analyst with Parks Associates, told MacNewsWorld.

"It's very easy to compare an Amazon digital title with hardback or paperback, and I think that's part of the reason why Amazon has had the success it has had," he added.

'Publishers Will Have More Power'

Amazon's business and reputation both suffered as a result of its conflict with Macmillan, Susan Kevorkian, program director for IDC's mobile media and entertainment service, told MacNewsWorld.

So, if it chooses to limit access to the works of publishers who won't sign its contracts, it will be hurt even more, she predicted.

"As the e-reader market grows, publishers will have more power in the marketplace because they control copyrighted work and can dictate payment terms for it, and because more retailers -- and options for consumers to buy digital books -- will emerge to challenge Amazon and Apple," Kevorkian explained.

Amazon is "still in the content business," she noted, so it "needs to offer as wide and deep a selection of content as it can in terms of physical and digital books -- the latter to keep Kindle competitive."

Going forward, retail price competition in digital books is "more likely to be at the expense of retailers' margins than publishers' revenue and profits," Kevorkian concluded. "The takeaway here is that publishers will set digital book prices, and retailers will need to follow suit with their pricing, rather than dictating retail prices to consumers."

Amazon on Thursday also launched its new
Kindle for Mac, a free application for reading Kindle books on Macintosh computers.

Neither Amazon nor Apple responded by press time to MacNewsWorld's requests for comment.